There is little doubt that the crypto slide has been monumental. Since November 2021, the market capitalisation of all crypto assets has dropped from a combined $US3 trillion to around $US1.1 trillion.

Some US crypto lenders, such as Celsius Network, Babel and Vauld, responded by freezing withdrawals; other exchanges, such as Coinbase, laid off staff. Locally, Swyftx announced they were cutting some 90 jobs, claiming that while they were not directly exposed to FTX, they had been impacted by the wider fallout. Brisbane-based Digital Surge has entered into administration after it revealed they were directly exposed to FTX.

Meanwhile, ETH saw similar losses to Bitcoin throughout 2022, down to around $US1100, while Cardano (ADA) suffered even worse, falling to $US0.46. This was all before the FTX collapse.

While this doesn’t yet match the severity of the 2018 crash, in which Bitcoin lost 80% of its value, experts say things could still get worse for those left holding BTC—long regarded as the bellwether of crypto.

It’s these kinds of losses that have prompted the Australian corporate regulator, the Australian Securities and Investments Commission (ASIC) as well as consumer advocacy group, CHOICE, to remind people of the highly volatile and risky nature of crypto.

As ASIC notes through its Moneysmart site: “When a cryptocurrency fails, investors will most likely lose all the money they put in. In most countries, cryptocurrencies are not recognised as legal tender. “

The site also warns against a high instance of crypto scams, while CHOICE is calling for greater consumer protections. It’s worth noting that FTX Trading was allegedly hacked in the wake of its collapse, with “unauthorised transactions” revealing that $US600 million had disappeared from the exchange’s wallets.

Meanwhile, the Australian Government is planning on introducing legislation this year to better protect consumers against crypto shocks and scams, and is currently token mapping the crypto landscape to get a sense of the industry.

Related: Safest Way to Store Crypto?

Co-founder of automated crypto trading platform Coinrule, Oleg Giberstein, thinks crypto is undergoing the same stresses as other parts of the economy, leading to the fall in prices.

He said: “It’s not just crypto that’s down, everything is down, and over the next six to 12 months the economic outlook is bad. Central Banks are between a rock and a hard place with regard to slow economic growth and high inflation. So, investors are escaping ‘risk-on’ assets like crypto and tech stocks.”

As for whether this downturn marks the beginning of a long-term trend or a temporary blip, Giberstein believes the market could remain challenging for up to two years, but added things could worsen during that time.

Sam Kopelman of crypto exchange Luno agreed that Bitcoin and other coins’ misfortunes weren’t happening in isolation: “Investors dumped assets across the board (earlier this year) as global stocks suffered the worst day since June 2020. The market is battling the consequences of rapidly rising US interest rates, alongside military conflict in Europe.”

Australian experts agree, with Chris Berg, co-director of RMIT’s Blockchain Innovation Hub, claiming that inflation was behind the (pre-FTX) precipitous falls.

As central banks, including the Reserve Bank of Australia, hike rates to curb inflation, investors begin dumping volatile assets.

“Crypto is the ultimate risk asset, so it’s the first to fall,” Dr Berg told ABC.

The principle of ‘buy the dip’ is based on an assumption price drops are temporary aberrations that correct themselves over time. Dip-buyers hope to exploit dips by buying at a relative discount and reaping the rewards when prices rise again.

Crypto markets are volatile, so buying cryptocurrencies at any price—let alone a dip that might become a long-term trend—is risky. While prices could return to previous levels, they could also fall even further, leaving your investment underwater.

If the past is prologue, then the current dip (or crash, depending on your perspective) could bounce back as it did last year, when prices fell to similar levels before returning to pre-dip levels and even peaking in the autumn. But of course, they might not.

The crypto markets have shown some strength since the beginning of the new year, but whether this strength can continue with the economic headwinds of high inflation and increasing interest rates is yet to be seen. As with every kind of investment, let alone the unpredictable world of cryptocurrencies, past performance is no guarantee of future results. Bitcoin fell to below $US16,000, after the news of the FTX collapse, but previously had been hovering around $US20,000 for months.

Co-Founder at Coinrule, Oleg Giberstein, said: “Many a novice investor has been burned trying to ‘catch falling knives’”.

He advises those committed to ‘buying the dip’ to decide on a set amount of money they’re comfortable with using to buy BTC or ETH each month and not to worry too much about what happens to prices over the next two years.

Pavel Matveev of digital exchange Wirex advises buyers to hedge their bets. He said: “It’s important to diversify your crypto portfolios with different altcoins to mitigate risks.”

If you’re new to investing in cryptocurrency, and aware of the risks but want to learn more, we’ve put together a guide to walk you through the process, including how to choose a platform, what fees are involved and alternatives to buying coins directly. Read our How to Buy Cryptocurrency guide here.

This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency as an investment class.